With traditional lenders maintaining a tight leash on credit, more and more business owners turn to a new breed of lenders for their financing needs — a group found entirely online. Fueled by web-based tools that speed up the application process and determine eligibility in minutes, these lenders typically approve more loans than traditional banks. They can provide financing much quicker than their traditional counterparts.
Many online lenders use technology to evaluate businesses differently from traditional lenders. For example, online lenders may access a business’ transactions and cash flow via their bank account’s website or examine other digital data points to analyze a business.
What is an Online Business Loan?
An online business loan is a source of funding that businesses can apply for and access via online lenders. Online business loans are useful options for small businesses in particular, because the application process is easier, and approval time can be shorter than traditional business loans.
Shorter Term Online Business Loans
This lender provides business owners with loans ranging from three to 24 months. These loans are often used for specific, shorter-term projects such as purchasing inventory, launching marketing campaigns, or general working capital. Some examples of shorter-term lenders are:
- OnDeck – works largely with “Main Street” businesses and offers loans of up to $250,000. OnDeck has loaned over $3 billion nationwide.
Longer-Term Online Business Loans
These lenders provide business owners with loans that range from 1 to 5 years with amounts up to $500,000. These loans are often used for longer-term projects such as major renovations or the opening new location. Some examples of these longer-term lenders are:
- Funding Circle – started in the U.K. and has lent over $700 million globally to small businesses; Funding Circle offers loans up to $500,000
Benefits of Online Business Loans
Online business loans present some benefits over traditional loans, including:
- Easier application process
- No need to go into a physical bank or lender’s office
- More options so business owners can choose the online business loan that best suits their business needs
- Flexible terms and repayment options
- Faster approval and access to funds
Best Uses for Online Business Loans
Online business loans can be used for a number of business needs, including:
- Working capital to cover operational and other expenses
- Cash flow to cover payroll or one-time gap payments
- Equipment purchases
- Technology or infrastructure investment
- Inventory scaling or purchasing
- Real estate purchasing
Online Business vs. Traditional Business Loans
Online business loans are distinct from traditional loans in several ways, many of which are favorable for businesses, particularly small businesses, but there are some watch-outs.
Online Business Loans
- Flexible qualifications and terms
- Easier to qualify
- Quicker to get approved and get access to funds
- Streamlined underwriting process
- Higher fees and interest
- Require more documentation and collateral in most instances
- Specific qualification requirements
- More rigid underwriting process
- Potentially lower fees and interest
How to Choose the Right Loan For Your Business?
Choosing the right loan for your business will depend on several variables, including:
- How long you have been in business?
- Your business credit profile
- The financial health of your business
- How much money you need?
- What do you plan to use the funds for?
- Whether you have existing loans or other debt
- What repayment terms are you comfortable with, including time to repay, interest, and fees?
Services like BusinessLoans.com can help you compare what business loans are available to meet your needs and qualifications.
Rates & Repayment
Online business loans tend to have a higher interest rate relative to traditional bank loans. However, they also have much higher approval rates and can provide funding far quicker than traditional lenders. The rates will vary by lender, term, and risk and are typically lower than other options such as merchant cash advances. Repayment methods also vary depending on the lender, so make sure to do your research and find the best fit for your business. Some lenders require a fixed amount daily or weekly, while others require a traditional monthly payment.
Qualifications and Requirements for Online Business Loans
These both vary from lender to lender, but here are some general guidelines:
- Required Time in Business: Usually between 1-2 years
- Minimum Annual Revenue: $75,000 – $250,000
- Minimum Personal Credit Score: 500-650
- Industry: Industry requirements vary by lender, but restricted industries sometimes include financial services, home builders, real estate investors, etc.
The Best Online Business Loan Options
The type of business loan that’s right for your business will take into consideration the above factors as well as what lenders will approve your application. Some of the best online business loan options are:
- Fundbox: Loan amounts up to $150K with a minimum credit score of 600
- Funding Circle: Loans up to $500K with credit scores of 660
- Bluevine: Loans up to $250K with a credit score of 620 or up
- Ondeck: Loans up to $250K with a credit score of 600 or up
A major benefit of online business funding is how easy it is to apply for a loan. Applications are usually just a single page and tend to be very straightforward. They can be completed online, over the phone, or via fax. However, there are certain things you’ll need for non-bank lenders, including:
- Your Social Security Number
- Your Business Tax ID
- Connection to your business bank account or paper bank statements (for certain lenders)
- Financial statements (typically for larger loan sizes)
Another advantage to working with online lenders is the quickness of their review process. The shorter-term lenders can often provide a decision in minutes or hours, while the longer-term lenders may have a decision within a few days. In a world where an application for financing in a traditional setting can take weeks or even months, the speed and simplicity offered by online business lenders are a major attraction for many business owners.